How to handle nonprofit pricing and discounts

Learn how to give back while still taking care of your own business
Agency Leadership Podcast

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From time to time, every agency gets approached by a nonprofit about discounted pricing. Many vendors of other goods and services extend these types of special deals, so these organizations aren’t crazy to ask.

Chip and Gini discuss how agency owners should handle these types of requests. It is easy to get caught in a bad situation by providing what seems like a small 10% discount, only to see that erode all of the agency’s profit margin on the work.

There’s nothing wrong with doing pro bono work or even offering a discount. The key is to understand all of the ramifications of what you’re doing and the impact on your agency’s finances.

In this episode, you will hear some tips on how to make relationships with nonprofits a win-win scenario for agency and client alike, as well as pitfalls to try to avoid.

Resources

Transcript

CHIP: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin.

GINI: And I’m Gini Dietrich.

CHIP: And we’re here today to talk about discounting what you pay to listen to this podcast, you will get a full 50% discount this week from 000. Now, but it as agencies, we do give discounts. And in this particular case, we want to talk about nonprofit pricing to include discounts but other scenarios as well, because it’s a topic that a lot of agencies are approached about. It’s it’s commonplace in other environments for businesses to offer nonprofit discounts. And so nonprofits in some respects have sort of come to expect them. And so naturally, they asked their agency for a discount as well. And so what do you do when you have someone come to you and say, do you have a nonprofit discount?

GINI: I think there are a few ways you can handle this. You know, I think as a small agency, it’s hard to offer a discount, right? You can’t say to your team, okay, well, I’m only going to pay you half of your salary for this, but then I’ll pay your full salary for that. So I think it’s a little bit of a challenge. You certainly can do it. And I would argue that you should do it if if you want to do it, that it should be with nonprofits that are aligned with the other kinds of work that you do, not just any nonprofit that asked, but I think there are also some other ways that you can get around offering a quote unquote, discount. For instance, I saw that in the PR news Slack channel that there’s a PR firm in on the East Coast that offers free communications training to nonprofits servicing their area, which I think is really interesting. So they do. They do applications, they have an informational session, and then they choose from the applications they choose who will go through that it’s six months, and they walk away with a communications plan for their nonprofit but they’re the ones who created it. So they have some ownership in it too. So I think there are some ways that you can work with nonprofits that don’t require you to slash your prices and not you know, get paid for your value, but also give a lot of value to a nonprofit, especially if it’s something that you believe in.

CHIP: And I think that’s a, that’s a good point you make it’s not, I think it’s a bad idea to have a straight across the board, nonprofit discount policy in your agency that is highly unlikely to work. And it’s, you know, it’s really fraught with problems because as you say, you can’t just pay your team less. So, you know, if your, if your costs to implement the work remain the same and your revenue comes down, all of a sudden, you know, killing your profitability, which, if you’re not careful about it, you’re not doing it thoughtfully, you know, because it’s very easy to say, Look, I’ll cut my price by 10% for nonprofits. Doesn’t sound like a whole lot, right? But right if you’re if your overall margin on projects is typical, an agency and you’re 15 to 20% margin, all of a sudden, you’ve eroded most of your profit margin, with that simple little 10% discount. So, and I’ve seen agencies that give larger than a 10% nonprofit account as well. And and I’m fairly certain that they don’t realize exactly what they’re doing when they do it. And so you really need to be very, very cautious about having those policies. But as you say, there are lots of other ways that you can work with nonprofits. And this is something that came up in a conversation in the spin sucks community on slack. And so that’s that’s where the idea for the show came from. And there was a lot of good back and forth in that discussion about some of those different options and how you might be able to approach it.

GINI: You know, some of the large agencies will also do sort of a, an application process as well and then whittle it down to we’ll work with one nonprofit, and they may do it for free. It may be pro bono work for that nonprofit, but it’s, it allows them both to market, get some great marketing and great get some great public But also allows them to work with the one organization that the that the company the agency can get behind.

CHIP: Yeah, I think the most important thing here is to as an agency owner, you need to be thinking about your work with nonprofits and any kind of discount or deal you give them. It’s basically a donation to that organization ran. So it needs to be aligned with the values of you and your agency. But it also needs to be thought of in that way, because if you said, okay, you know, I’m going to give an across the board 10% discount, and let’s say you do $100,000 worth of business with nonprofits in the course of a year that’s equivalent to a $10,000 donation. Is that really what you intended to do? And so if you think about it, in terms of it’s a donation, you can be much more thoughtful and so if you’re like those agencies, perhaps you DO IT pro bono and you say, you know, we’ll give you $10,000 worth of work, or you do grants, you know, you might I’ve seen this approach work as well like that. You know, where I’ll do work with nonprofits and you get charged Normal rates, but we’ll give out a $5,000 a year grant for some of the work that, you know, there’s a lot of different ways to do it. I like that a lot. And I’m a big fan of two things here. One is I think the nonprofit needs to have skin in the game. So there are certainly times and places for pro bono. But I’m generally skeptical of free because people tend to value what they pay for. And so you’re more likely to have a fruitful partnership, even if they’re even if you’re covering 80% of the cost. If they’re covering 20%. At least, they’re putting something into it sort of it’s sort of like the Habitat for Humanity model, right, that there needs to be some sweat equity in it. Yeah, absolutely. And it can’t be simply a gift from your agency to the nonprofit in most cases otherwise, you know, they’ll they’ll use and abuse you.

GINI: If you I don’t know the answer to this, but if you do a grants like that, is that can you is that tax deductible from the perspective of a donation, sir shows its time versus cash.

CHIP: So my first advice is Consult your accountant because we’re not accountants or lawyers. That said, depending on how it is structured, when you’re providing in kind services, it’s, it’s likely to be just as deductible as any other business expense. So you’re, you’re not likely to get a huge benefit out of it that way. On the other hand, the way taxes work, if you take the money out in your own pocket, and then write the check, that may actually work out worse. But my general advice is, before you structure something like this, it’s worth talking to your accountant just to make sure that you’re framing it in the most advantageous way possible. But in general, you’re not going to be looking at a major tax savings with these kinds of approaches, because your business expenses are going to be deductible. Anyway, in most cases.

GINI: I like that idea. I like the idea for grants. I really like the idea of of training so that even if the nonprofit isn’t paying for it, they’re paying for it in time and sweat sweat equity because they’re having to show up for the training and do the work that I do a lot. You know, I’m big on passive income. So you may already have an online course, or an online training or some sort of workshop that you already do that’s already been created. So you don’t have to do any extra work. I like that idea a lot, too. So I think there are some, definitely some ways that you can get around the, yeah, we’ll offer you a 20% discount on services.

CHIP: Yeah. And it is if you’ve got those passive income streams, trainings, etc, that, that it’s sort of like the proverbial seat on the airplane, and there’s no additional cost right? to you or negligible cost, then that’s certainly a time where you can give things away for free or give a discount. You know, when I ran custom scoop is a software business. We gave discounts to nonprofits, because the cost of adding another account was negligible. And so it made sense, but in the agency space, you know, every time you take on a new client, it’s very human intensive. So you’ve got substantial cost, and so that’s a that’s why you as an agency owner, need to be Be careful about thinking about it in the same way that someone who has more fixed costs for their products might approach it. But the, you know, the other thing, you know, if you’re thinking about grants, or you know, doing work pro bono or even, I love the idea of doing applications for a couple of reasons. I love that too. Yeah, you know, one is that if you’ve got some sort of an application process, it allows you to be really thoughtful about who you’re working with. And so it’s not, you know, it’s not just whoever happened to come in and call you up one day, and you’re like, Sure, I’ll do they work with me. And they may be a great organization. But you know, is it really the highest best use of your agency’s resources? Is it truly as aligned as possible with much want to do so if you do a grant, you can be thoughtful about it from that perspective. But the other thing is, there’s a potential for earned media off of that as well and building out your network. Yeah, some sort of a process and I’ve seen a number of organizations do this pretty well. So and whether it’s, you know, you give out, you know, one grant a quarter or one a year or you know what, however you want to do it, there’s a lot of different approaches. I think there’s real value in that.

GINI: You could do scholarships. But yeah, there’s a, I think there’s a really big opportunity here for smaller agencies to do to to replicate some of the that kind of stuff that large agencies do do. But yeah, to your point without having to service it with, you know, the same business expense,

CHIP: right? Well, and of course, you know, this is this is an opportunity for me to hop up on my soapbox, as I did in the community as well. and point out that, you know, before you give away services, or you give discounts, you need to understand your cost structure. And this is this is an area that agencies are doing a terrible, terrible job. Yes, you need to know what your actual project costs are. Yeah. And then you know, what you’ve got to play with, you know, you know, that if you’ve got a 20% profit margin, that’s the room that you can play with before it starts coming out of your pocket personally, and you may you may be willing to go into your own pocket, I mean, if it’s a cause or organization that you really Believe in deeply, you may make that decision. That’s fine. You just have to do it consciously. It has to be intentional choice. And the biggest things that gets agencies in trouble across the board, not just on on pricing and discounts, is allowing inertia to take them forward. They really, really need to be thoughtful in these decisions. And that means accumulating the data so you know, how much your staff costs, how much time they’re investing, what are your other hard costs on projects, if you know that, you’re golden, because you’re much less likely to get into trouble by making really bad decisions because you were uninformed.

GINI: And I will plug something for you here because I think it’s really valuable from this perspective, but you have us you have a budget allocation worksheets, spreadsheets that has several worksheets in it. And that allows you to figure out what those costs are. So you just plop in. I think you’re right now you have it as Junior mid, mid and senior level people but you could actually plop in the people. What you’re paying them and right you know what their hourly rate is and all that. And it’ll tell you exactly what your your costs are. So include a link to that in the show notes chip so that people can download it because it’s really valuable.

CHIP: Yeah, I will, I will definitely do that. And look at I created it in part because it’s something that I’ve used in companies and agencies myself. But it’s also, I tried to structure it because so many of the agencies I work with have challenges in doing this well, and really, you only need to nail the template wants. So I’ve given you a template, you’ll need to make some customizations for your agency. as you point out, it’s got different staffing levels that you need to play within that sort of thing to figure out, you know, how exactly you want to do it. But it’s, if you come up with the model for your agency than it really is, it takes almost no time at all to plug in the estimates, and then track it over time so that you get better at estimating.

GINI: Yeah. And the nice thing about it too, is you’ve got it all set up from a formula standpoint. So if you change somebody’s salary, just just change that and it flows right through the whole worksheets. So it’s, it’s, it’s very valuable, thank you, and it helps fig figure that out. So you can figure that out. And then you’ll know, okay, we have if I wanted to provide so and so and so and so for this nonprofit, I know that we have to make at least this much money.

CHIP: Right? Right. And I think that, you know, we, we all look at these things and, you know, we want to do a lot of good and you know, we want to be as helpful as possible, but we need to make sure that we’re doing it in the context of still growing a healthy business, because it it’s not going to do anybody any good if you go all in for nonprofits and then find yourself unable to make payroll, and having to make some tough decisions that way. Because, you know, you’ve you’ve literally Rob Peter to pay Paul, depending on but, you know, so, but I think the you know, the great thing here is that as an agency, there are a lot of different ways that you can be helpful and if you need to make sure that you You’re expanding your horizons beyond just that thought of the discount. So if someone comes to you and says, Hey, do you have a nonprofit discount, that’s an opportunity for you to talk about all of the different ways that your agency can engage with the nonprofit. And maybe in some cases that, you know, it’s not even the the direct services of your agency that you’re offering. But you know, in my various businesses, we’ve done service days for local nonprofits, I love that, you know, there are opportunities to engage in that way. And if you, if you really, if you take the blinders off from the pure financial and look at all the different ways that you can help, I think you’ll find many, many, many, many more opportunities, probably to help even more people.

GINI: And if you don’t have any passive income already created, this is a good opportunity for you to create it, run them through it as a beta and say we’re giving you a discount on this because it’s a beta. You provide the US them to provide feedback, and then you build it out. For instance, audience and make more money. Right.

CHIP: And that is, that is a fantastic idea as well that you use, you use your your low dollar opportunities or your giveaway opportunities to test ideas to test different things. And it’s sort of like, you know, if you look at it in terms of the, as we’ve talked about on this show before, it’s important to have your own agency as a client, and that sort of as a sandbox for your team to learn, try new services, try new tactics, get some staff more experienced, you can do the same thing with nonprofit engagement. So, you know, one way to give a better deal to a nonprofit is not straight up by giving a discount, but by putting together a project that’s run by more junior people who have lower costs, and so therefore, you can charge a lower price. So are they getting the services more cheaply? Yes, they’re also perhaps not getting as much access to some of your senior folks. But you know, that’s a trade off that a lot of nonprofits would be willing to make because they just need to continue to move the ball forward. And so if they are being run by some juniors, who are starting to get some project management experience and starting to become more strategic themselves, that’s a great opportunity as well. So you can look at the way that you provide things to nonprofits both as far as you know, purely cutting into your profit margin, or by lowering your cost structure, but helping them to achieve similar results.

GINI: So we have the straight up discount, assuming it doesn’t eat into profits too much erode your profit. We have trainings, we have workshops, we have online courses, and then we have, you know, some sort of junior level, allow them to learn on the business on the association, nonprofits business, but then it doesn’t cost as much. I like it. Those are some really good options. And

CHIP: I bet there are other ideas out there as well. So I’m sure if listeners have other ideas, please do share them with us. And perhaps we’ll do another show about some of these possibilities. Because I think it’s there. There’s a lot of benefit to working with nonprofits as an agency. And so you want to think about how to do it as long as you’re just doing it in a planned way. You’ll come out ahead,

GINI: love it, love it, love it, love it. great ideas.

CHIP: And with that, this discounted episode of the agency leadership podcast comes to a close, we just kind of on time a little bit too, as I look at the data at the clock here, not much, not not a whole lot, but it’s, it’s a little bit. See, so because we charge you 50% less, we had to decrease the amount of time we spend there to balance out the cost structure. So with that, I’m Chip Griffin,

GINI: and I’m Gini Dietrich

CHIP: and it depends

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